UK estate agent Foxtons makes $1.2 billion stock market debut

LONDON (Reuters) - British property agent Foxtons (FOXT.L) enjoyed a strong stock market debut on Friday, seeing its stock rise well above its offer price in what could be seen as a vote of confidence in the housing market particularly in London where Foxtons is focused.

Shrugging off some concerns that its core property market might be overheating, the shares opened 19 percent above the 230 pence offer price - itself at the top of a targeted range between 190p and 230p - to value the company at around 775 million pounds.

By 1425 GMT they were trading at 271.5p.

Foxtons sold 60 percent of its equity to become the latest UK property-related company to float on the back of a recovering housing market, following real estate agency Countrywide (CWD.L) and housebuilder Crest Nicholson (CRST.L) earlier this year.

Both have seen their shares rise more than 50 percent since going public, but some investors said last week Foxtons was late to the party and too exposed to London.

While Britain’s housing market has been boosted by signs of an improving economy as well as help from the government and the Bank of England to ease access to finance, the pace of recovery has raised concerns about a new property bubble.

Data last week showed British house prices recorded their fastest rise in almost seven years.

However, despite being wary of proposed further government stimulus measures, housebuilding analyst Tony Williams said London was not yet experiencing a market bubble and rising interest rates in coming years would act as a natural brake.

“A bubble is when you have people buying and flipping within the space of months. What you have in London is a shortage of supply and a planning system that gums up the works,” he said.

“This particular run will end some time between the back end of 2014 and 2016, as rising mortgage rates will cause the market to plateau,” Williams added.

Foxtons, which last year earned more than half its revenue from its lettings business, is focused on expansion within London, home to 40 of its 42 branches, and has said it is aiming for five to 10 new branch openings a year between 2014 and 2018.

A Foxtons estate agent sign is seen outside a branch in north London September 3, 2013. REUTERS/Suzanne Plunkett

But analyst Anthony Codling at brokerage Jefferies said that while estate agents were the best way to gain exposure to the UK housing market, prospects were better for nationwide firms.

“We see more significant potential for house price growth outside of London than inside,” he said in a note. Jefferies worked on Countrywide’s float.

CHEQUERED HISTORY

House prices fell 16.3 percent in London after the financial crash and by 16.6 percent across England and Wales, according to Land Registry data. While London prices have recovered to 6 percent above their pre-crash peak, in the rest of the country they are still 10 percent below.

Foxtons’ offering, which was oversubscribed, raised 335 million pounds for selling shareholders, including majority owner private equity group BC Partners, and company employees.

BC Partners reduced its stake from 75 percent to 28.3 percent through the sale and if an overallotment option - whereby more shares can be sold if there is strong enough demand - is exercised this will drop further to 22.3 percent.

The company, known for its cafe-style branches and the distinctive Mini Cooper cars driven by its sales staff, also raised 55 million pounds from selling new shares to reduce debt.

A source close to the deal said good demand had come from investors in the UK and United States, with buyers confident housing market transactions volumes were far from peaking and Foxton’s strong lettings business would also support its value.

The offer price valued Foxtons at around 18 times next year’s forecast earnings, compared with 17 times for Countrywide and a median of around 12.3 times for UK housebuilders, according to Thomson Reuters data.

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The float marks a milestone for BC, which has had a chequered history with Foxtons since first buying it for about 360 million pounds in 2007. The agency came to epitomize the woes of the private equity industry as plummeting sales pushed it into breach of the terms on its debt.

BC, which ceded control of Foxtons to its lenders in 2010 before taking majority ownership again last year, is on track to make a return of close to three times its investment, a person familiar with matter said.

Credit Suisse CSGN.VX and Numis Securities acted as joint bookrunners on the offering, while Canaccord Genuity was co-lead manager. The advisors will receive fees of 2 percent of the offer size, plus a possible discretionary fee of 1 percent.

Additional reporting by Tom Bill; Editing by Greg Mahlich and David Holmes